The risk of not talking to clients about ESG is losing them, RI expert says

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Sustainable investing has become one of the fastest-growing investment themes in recent years as more people are paying closer attention to companies’ environmental, social, governance (ESG) performance.

Assets invested in sustainable mutual funds and exchange-traded funds (ETFs) roughly doubled to $34.5-billion in Canada at the end of 2021, up from $17.4-billion a year earlier, according to a recent Morningstar Canada report. It also shows the industry launched 73 Canadian-based investment products last year, compared with 42 products the year prior.

“It’s a reflection of the growing interest that Canadians have for this area,” says Asmita Kanungo, national director, ESG practice management, at Northwest & Ethical Investments LP (NEI), which is focused on responsible investing (RI).

The pandemic has changed how investors view RI and it’s expected to have a big impact on the registered retirement savings plan (RRSP) season currently underway, she says.

“The pandemic has highlighted many global inequalities including vaccine distribution, food insecurity and the lack of income support for those on sick leave,” Ms. Kanungo says. “Because these issues have been amplified, many people are now shifting the way they invest their money and which corporations they choose to support.”

Globe Advisor spoke with Ms. Kanungo about the rise in RI and how advisors can engage clients in this space:

What’s behind the rapid growth in RI in your view?

Part of it is because our challenges are global in nature. Something like climate change doesn’t affect just one part of the world but the whole planet. It affects everyone. It’s highly visible. George Floyd’s murder became a catalyst for a more intensive conversation around systemic racism and inequality because we all witnessed it. Climate change has been brought to life for all of us because we can see the fires burning. There’s a shift in investors’ values. There’s a trillion-dollar wealth transition from aging and predominantly male baby boomers to millennials and women – two demographics that lean strongly toward aligning their values to the way they consume and invest.

How should advisors be engaging clients on RI?

The Responsible Investment Association came out with an investor opinion survey last year showing that 77 per cent of investors would like their financial advisor to inform them about RI; yet only 27 per cent of those investors indicated that their advisors are having that discussion. There’s what we call an ‘RI service gap.’ Advisors need to be proactive about RI. It can be something as simple as asking a question like, ‘What if you could achieve your financial goals while at the same time helping to improve society and the environment? Is that something that would be interesting to you?’ And that gets a conversation going. We have a program at NEI that helps advisors integrate RI within their practices.

What’s the risk of not talking to clients about ESG?

I’ve worked with hundreds of advisors across Canada to help them get comfortable and proactive in the space and, from what I’ve heard, they’ve never lost a client by bringing it up. In fact, they’ve gained clients. However, some who haven’t brought it up have said they’ve lost clients. So, that’s a risk. Advisors don’t need to be experts in RI, but they should have a good understanding of the space and discussing it will only help to increase client engagement.

This interview has been edited and condensed.

– Brenda Bouw, special to The Globe and Mail

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Also see:

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SEC seeks to bolster disclosure rules for private equity and hedge funds

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– Compiled by Globe Advisor staff

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